Lim vs. Philippine Fishing Gear Industries Inc.

[GR 136448, 3 November 1999]

FACTS: Lim Tong Lim requested Peter Yao and Antonio Chuato engage in commercial fishing with him. The three
agreed to purchase two fishing boats but since they do not have the money they borrowed from one Jesus Lim the
brother of Lim Tong Lim. Subsequently, they again borrowed money for the purchase of fishing nets and other fishing
equipments. Yao and Chua represented themselves as acting in behalf of Ocean Quest Fishing Corporation
(OQFC) and they contracted with Philippine Fishing Gear Industries (PFGI) for the purchase of fishing nets amounting
to more than P500k. However, they were unable to pay PFGI and hence were sued in their own names as Ocean
Quest Fishing Corporation is a non-existent corporation. Chua admitted his liability while Lim Tong Lim refused such
liability alleging that Chua and Yao acted without his knowledge and consent in representing themselves as a
corporation.

ISSUE: Whether Lim Tong Lim is liable as a partner

HELD: Yes. It is apparent from the factual milieu that the three decided to engage in a fishing business. Moreover,
their Compromise Agreement had revealed their intention to pay the loan with the proceeds of the sale and to divide
equally among them the excess or loss. The boats and equipment used for their business entails their common fund.
The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That
the parties agreed that any loss or profit from the sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership. The principle of corporation by estoppel cannot apply in
the case as Lim Tong Lim also benefited from the use of the nets in the boat, which was an asset of the partnership.
Under the law on estoppel, those acting in behalf of a corporation and those benefited by it, knowing it to be without
valid existence are held liable as general partners. Hence, the question as to whether such was legally formed for
unknown reasons is immaterial to the case.

Torres vs. Court of Appeals, 310 SCRA 428 (1999)

In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement with Manuel Torres. Under
the agreement, the sisters agreed to execute a deed of sale in favor Manuel over a parcel of land, the sisters received
no cash payment from Manuel but the promise of profits (60% for the sisters and 40% for Manuel) said parcel of
land is to be developed as a subdivision.
Manuel then had the title of the land transferred in his name and he subsequently mortgaged the property. He used
the proceeds from the mortgage to start building roads, curbs and gutters. Manuel also contracted an engineering
firm for the building of housing units. But due to adverse claims in the land, prospective buyers were scared off and
the subdivision project eventually failed.
The sisters then filed a civil case against Manuel for damages equivalent to 60% of the value of the property, which
according to the sisters, is whats due them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court.
The sisters then appealed before the Supreme Court where they argued that there is no partnership between them
and Manuel because the joint venture agreement is void.

ISSUE: Whether or not there exists a partnership.

HELD: Yes. The joint venture agreement the sisters entered into with Manuel is a partnership agreement whereby
they agreed to contribute property (their land) which was to be developed as a subdivision. While on the other hand,
though Manuel did not contribute capital, he is an industrial partner for his contribution for general expenses and other
costs. Furthermore, the income from the said project would be divided according to the stipulated percentage (60-40).
Clearly, the contract manifested the intention of the parties to form a partnership. Further still, the sisters cannot
invoke their right to the 60% value of the property and at the same time deny the same contract which entitles them to
it.
At any rate, the failure of the partnership cannot be blamed on the sisters, nor can it be blamed to Manuel (the sisters
on their appeal did not show evidence as to Manuels fault in the failure of the partnership). The sisters must then
bear their loss (which is 60%). Manuel does not bear the loss of the other 40% because as an industrial partner he is
exempt from losses.
BENITO LIWANAG and MARIA LIWANAG REYES vs.WORKMEN'S COMPENSATION COMMISSION
Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto Supply. A commercial guard
who while in line of duty, was killed by criminal hands. His widow and minor children, in due time filed a claim for
compensation with the Workmen's Compensation Commission, which ordere appelants to pay jointly and severally
P3,494.40 to the claimants.Hence this appeal, arguing that there is nothing in the compensation Act which provides
that the obligation of an employer arising from compensable injury or death of an employee should be solidary
obligation,and that, in absence of such, the responsibility of appellants should not be solidary but merely joint.
Issue:
wether or not the appelants should pay jointly the amount awarded to the widow and children ?
Ruling:
Although the Workmen's Compensation Act does not contain any provision expressly declaring solidary obligation of
business partners like the herein appellants, there are other provisions of law from which it could be gathered that
theirliability must be solidary. Arts. 1711 and 1712 of the new Civil Code provide:
ART. 1711. Owners of enterprises and other employers are obliged to pay compensation for the death of or injuries to
their laborers, workmen, mechanics or other employees, even though the event may have been purely accidental or
entirely due to a fortuitous cause, if the death or personal injury arose out of and in the course of the employment. . . .
.
ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the employer shall be
solidarily liable for compensation. . . . .And section 2 of the Workmen's Compensation Act, as amended reads in part
as follows: . . . The right to compensation as provided in this Act shall not be defeated or impaired on the ground that
the death, injury or disease was due to the negligence of a fellow servant or employee, without prejudice to the right
of the employer to proceed against the negligence party. The provisions of the new Civil Code above quoted taken
together with those of Section 2 of the Workmen's Compensation Act, reasonably indicate that in compensation
cases, the liability of business partners, like appellants, should be solidary; otherwise, the right of the employee may
be defeated, or at least crippled. If the responsibility of appellants were to be merely joint and solidary, and one of
them happens to be insolvent, the amount awarded to the appellees would only be partially satisfied, which is
evidently contrary to the intent and purposes of the Act.Moreover, Art. 1207 of the new Civil Code provides:. . . . There
is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity.Wherefore, award appealed from is affirmed.

MUASQUE v. CA
G.R. No. L-39780; November 11, 1985
Ponente: J. Gutierrez. Jr
FACTS:
Elmo Muasque filed a complaint for payment of sum of money and damages against respondents Celestino Galan,
Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered into a contract with
respondent Tropical through its Cebu Branch Manager Pons for remodeling a portion of its building without
exchanging or expecting any consideration from Galan although the latter was casually named as partner in the
contract; that by virtue of his having introduced the petitioner to the employing company (Tropical), Galan would
receive some kind of compensation in the form of some percentages or commission.
Tropical agreed to give petitioner the amount of P7,000.00 soon after the construction began and thereafter the
amount of P6,000.00 every fifteen (15) days during the construction to make a total sum of P25,000.00.
On January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a stranger to the
contract, Galan, who succeeded in getting petitioner's indorsement on the same check persuading the latter that the
same be deposited in a joint account.

On January 26, 1967, when the second check for P6,000.00 was due, petitioner refused to indorse said check
presented to him by Galan but through later manipulations, respondent Pons succeeded in changing the payee's
name to Galan and Associates, thus enabling Galan to cash the same at the Cebu Branch of the Philippine
Commercial and Industrial Bank (PCIB) placing the petitioner in great financial difficulty in his construction business
and subjecting him to demands of creditors to pay for construction materials, the payment of which should have been
made from the P13,000.00 received by Galan.
Due to the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to Galan,
petitioner demanded that said amount be paid to him by respondents under the terms of the written contract between
the petitioner and respondent company.

ISSUE:
Whether there was a breach of trust when Tropical disbursed the money to Galan instead of Muasque

HELD:
No, there was no breach of trust when Tropical disbursed the money to Galan instead of Muasque.

The Supreme Court held that there is nothing in the records to indicate that the partnership organized by the two men
was not a genuine one. A falling out or misunderstanding between the partners does not convert the partnership into
a sham organization.

In the case at bar the respondent Tropical had every reason to believe that a partnership existed between the
petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan and Associates"
and delivering the same to Galan because as far as it was concerned, Galan was a true partner with real authority to
transact on behalf of the partnership with which it was dealing.
Rojas v. Maglana
Facts:
Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Development Enterprises (EDE). It was
a partnership with an indefinite term of existence. Maglana shall manage the business affairs while Rojas shall be the
logging superintendant and shall manage the logging operation. They shall share in all profits and loss equally. Due to
difficulties encountered they decided to avail of the sources of Pahamatong as industrial partners. They again
executed their Articles of Co-Partnership under EDE. The term is 30 years. After sometime Pamahatong sold his
interest to Maglana and Rojas including equipment contributed. After withdrawal of Pamahatong, Maglana and Rojas
continued the partnership. After 3 months, Rojas entered into a management contract with another logging enterprise.
He left and abandoned the partnership. He even withdrew his equipment from the partnership and was transferred to
CMS. He never told Maglana that he will not be able to comply with the promised contributions and he will not work as
logging superintendent. Maglana then told Rojas that the latter share will just be 20% of the net profits. Rojas took
funds from the partnership more than his contribution. Thus, Maglana notified Rojas that he dissolved the partnership.
Issue: What is the nature of the partnership and legal relationship of Maglana and Rojas after Pahamatong retired
from the second partnership
Ruling:
It was not the intention of the partners to dissolve the first partnership, upon the constitution of the second one,
which they unmistakably called additional agreement. Otherwise stated even during the existence of the second
partnership, all business transactions were carried out under the duly registered articles. No rights and obligations
accrued in the name of the second partnership except in favor of Pahamatong which was fully paid by the duly
registered partnership.

TOCAO V. CA
G.R. No. 127405; October 4, 2000
Ponente: J. Ynares-Santiago
FACTS:
Private respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean
Water Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who
conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen
cookwares
Under the joint venture, Belo acted as capitalist, Tocao as president and general manager, and Anay as head of the
marketing department and later, vice-president for sales

The parties agreed that Belo's name should not appear in any documents relating to their transactions with West
Bend Company. Anay having secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business took off successfully. They operated
under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's name.
The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was not reduced to writing on the strength of
Belo's assurances that he was sincere, dependable and honest when it came to financial commitments.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to the Cubao sales office to the
effect that she was no longer the vice-president of Geminesse Enterprise.
Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January
8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net profits.
Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she
did not receive the same commission although the company netted a gross sales of P 13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with damages against
Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140
The trial court held that there was indeed an "oral partnership agreement between the plaintiff and the defendants.
The Court of Appeals affirmed the lower courts decision.
ISSUE:
Whether the parties formed a partnership
HELD:
Yes, the parties involved in this case formed a partnership
The Supreme Court held that to be considered a juridical personality, a partnership must fulfill these requisites:
(1) two or more persons bind themselves to contribute money, property or industry to a common fund; and

(2) intention on the part of the partners to divide the profits among themselves. It may be constituted in any form; a
public instrument is necessary only where immovable property or real rights are contributed thereto.
This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written
one.

In the case at hand, Belo acted as capitalist while Tocao as president and general manager, and Anay as head of the
marketing department and later, vice-president for sales. Furthermore, Anay was entitled to a percentage of the net
profits of the business.
Therefore, the parties formed a partnership.
MAXIMO GUIDOTE v. ROMANA BORJA(administratrix of the estate of Narciso Santos)1928 / Ostrand
FACTS
Maximo Guidote and Narciso Santos formed in 1918 a partnership business under the name of Taller Sinukuan, in
which Santos was the capitalist partner and Guidote was the industrial partner. Santos died in 1920. Guidote failed to
liquidate the affairs of the partnership and to render an account thereof to Borja, the administratrix of Santos estate.
Guidote brought an action against Borja to recover a sum of money[9k~], a part of which was alleged to be the
netprofits from the business due Guidote, and the rest of the sum consisting of advances allegedly made by Guidote.
Borja admitted the partnerships existence and prayed that Guidote be ordered to render an accounting and
to pay the estate 25k as net profits, credits, and property pertaining to Santos.Guidote called several
witnesses and introduced a so-called accounting and a mass of documentary evidence,which was so
hopelessly and inextricably confused that the court could not consider it of much probative value.
The courtdismissed Guidotes complaint and absolved Borja.
Guidote was ordered to render a full and complete accounting, verified byvouchers, of the partnership business.
Guidote rendered an account prepared by one Tomas Alfonso, a public accountant.
Numerous objections werepresented by Borja.
The court disapproved the account and ordered that Borja submit an accounting from the date of
thecommencement of the partnership up to the time the business was closed.
Borja presented an account and liquidation prepared by a public accountant, Santiago A. Lindaya, showing
abalance of P29k~ in Borjas [Santos estate] favor.
At the hearing, Borja introduced the public accountant Jose Turiano Santiagoto testify as to the results of an audit
made by him of the partnership accounts. Santiago testified that he had prepared a separateaccounting or liquidation
similar in results to that prepared by Lindaya, but with a few differences in the sums total. [
Computation:
Santos is a creditor of the Taller Sinukuan in the sum of P26k. Guidote is a debtor to the Taller Sinukuan in the sum of
P20k.]
In order to contradict the conclusions of the two public accountants, Guidote presented Tomas Alfonso and
thebookkeeper, Pio Gaudier, as witnesses.

The trial court judge said that the testimonies of these witnesses are unreliable.
Tomas Alfonso is the same public accountant who filed the liquidation Exhibit O on behalf of Guidote, in relation
tothe partnership business, which liquidation was disapproved by this court in a decision. The judge did not believe
Alfonsos proposition that Guidote, a mere industrial partner, notwithstanding his having received 21k on the
various jobs and contracts of the business had actually expended and paid out 63k, of 44k in excess of the gross
receipts ofthe business. It materially contradicts Guidotes allegations to the effect that the advances that he [Guidote]
madeamounted only to 2k.
Pio Gaudier is the same bookkeeper who prepared three entirely separate and distinct liquidation for the
samepartnership business, and the court found that the testimony given by him at the last hearing is
confusing,contradictory and unreliable.
Other witnesses were given scant consideration Chua Chak can neither read nor write English, Spanish,
orTagalog; Claro Reyes was forced to admit that a certain exhibit was not the original.
The court gave credence to the conclusions reached by the public accountants presented by Borja. Guidote
wasordered to pay P26k to Borja, with legal interest, plus costs.ISSUE & HOLDING
WON the trial court is correct in ordering Guidote to pay P26k to Borja.
YES
RATIO
There may be some merit in Guidotes contention that the dismissal of his complaint was premature. The better
practice would beento let the complaint stand until the result of the liquidation of the partnership affairs was known.
But under the circumstances, noharm was done by the dismissal of Guidotes complaint.
GUIDOTES ARGUMENT
Since Santos, up to the time of his death, generally took care of the partnerships payments and collections, his legal
representatives were under the obligation to render accounts of the operations, notwithstanding the fact that Guidote
was in chargeof the business subsequent to the death of Santos.
GUIDOTES ARGUMENT IS UNAVAILING
Wahl v. Donaldson Sim & Co.
The death of one of the partners dissolves the partnership, but that the liquidation of its affairs is by law entrusted, not
to theexecutors of the deceased partner, but to the surviving partners or the liquidators appointed by them.
The rule for the conduct of a surviving partner
In equity, surviving partners are treated as Trustees of the representatives of the deceased partner, with regard to the
interest of thedeceased partner in the firm. As a consequence of this trusteeship, surviving partners are held in their
dealings with the firm assetsand the representatives of the deceased to that nicety of dealing and that strictness of
accountability required of and incident to theposition of one occupying a confidential relation. It is the duty of surviving

partners to render an account of the performance of theirtrust to the personal representatives of the deceased
partner, and to pay over to them the share of such deceased member in thesurplus of firm property, whether it
consists of real or personal assets.Guidote failed to observe this rule, and he is not in position to complain if his
testimony and that of his witnesses is discredited.
The appealed judgment is AFFIRMED
Singson vs. Isabela Sawmill
GRN L- 27343 February 28, 1979Fernadez, J
Facts: Isabela Sawmill was formed by partners Saldajeno, Lon and Timoteo.Withdraw from the partnership and after
dissolution, L and T continued thebusiness still under the name Isabela Sawmill. The partnership is indebted
tovarious creditors and that Sheriff sold the assets of Isabela Sawmill to S andwas subsequently sold to a separate
company.
Issue: Whether or not Isabela Sawmill ceased to be a partnership and thatcreditors could no longer demand payment.
Ruling: On dissolution, the partnership is not terminated but continues untilthe winding up of the business. It does not
appear that the withdrawal of Sfrom the partnership was published in the newspapers. The Apelles and thepublic had
a right to expect the public had a right to expect that whatevercredit they extended to L & T doing business. In the
name of the partnershipcould be enforced against the partnership of said partnership. The judicialforeclosure of the
chattel mortgage executed in the favor of S did not relieveher from liability to the creditors of the partnership.It may be
presumed S acted in good faith, the Apelles also acted ingood faith in extending credit to they partnership. Where one
of the twoinnocent persons must suffer, that persons must suffer, that person whogave occasion for the damages to
be caused must bear the consequences.
Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin Bacorro v. CA, SEC and Joaquin Misa
G.R. No. 109248 July 3, 1995
Vitug, J.
Facts:

Ortega, then a senior partner in the law firm Bito, Misa, and Lozada withdrew in said firm.

He filed with SEC a petition for dissolution and liquidation of partnership.

SEC en banc ruled that withdrawal of Misa from the firm had dissolved the partnership.Reason: since it is partnership
at will, the law firm could be dissolved by any partner atanytime, such as by withdrawal therefrom, regardless of good
faith or bad faith, since nopartner can be forced to continue in the partnership against his will.

Issue:
1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo)is a partnership at will; 2. WON
the withdrawal of Misa dissolved the partnership regardlessof his good or bad faith;
Held:
1. Yes. The partnership agreement of the firm provides that [t]he partnership shallcontinue so long as mutually
satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving
partners.2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of thepartnership at will (e.g.
by way of withdrawal of a partner). He must, however, act in goodfaith, not that the attendance of bad faith can
prevent the dissolution of the partnership butthat it can result in a liability for damages
VILLAREAL V. RAMIREZ

Facts:
In 1984, Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750,000for the operation of
a restaurant and catering business. Respondent Ramirez joined as a partner in the business with the capital
contribution of P250,000. In 1987, Jesus Jose withdrew from the partnership and within the same time, Villareal and
Carmelito Jose, petitioners closed the business without prior knowledge of respondents In March 1987, respondents
wrote a letter to petitioners stating that they were no longer interested in continuing the partnership and that they were
accepting the latters offer to return their capital contribution. This was left unheeded by the petitioners, and by reason
of which respondents filed a complaint in the RTC.RTC ruled that the parties had voluntarily entered into a
partnership, which could be dissolved at any time, and this dissolution was showed by the fact that petitioners
stopped operating the restaurant. On appeal, CA upheld RTCs decision that the partnership was dissolved and it
added that respondents had no right to demand the return of their capital contribution. However since petitioners did
not give the proper accounting for the liquidation of the partnership, the CA took it upon itself to compute their
liabilities and the amount that is proper to the respondent. The computation of which was:(capital of the partnership
outstanding obligation) / remaining partners =amount due to private respondent
Issue: W/N petitioners are liable to respondents for the latters share in the partnership?
Ruling:
No. Respondents have no right to demand from petitioner the return of their equity share. As found by the court
petitioners did not personally hold its equity or assets. The partnership has a juridical personality separate and
distinct from that of each of the partners. Since the capital was contributed to the partnership, not to petitioners, it is
the partnership that must refund the equity of the retiring partners. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated. Therefore, the exact amount of refund equivalent
to respondents one-third share in the partnership cannot be determined until all the partnership assets will have been
liquidated and all partnership creditors have been paid. CAs computation of the amount to be refunded to
respondents as their share was thus erroneous.

YU v. NLRC

G.R. No. 97212; June 30, 1993

Ponente: J. Feliciano

FACTS:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business
operated by a registered partnership with the firm name of "Jade Mountain Products Company Limited" ("Jade
Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as
general partners and Chiu Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as
limited partners.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal sold
and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu
Chang, a limited partner, also sold and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel
Zapanta and himself, private respondent Willy Co acquired the great bulk of the partnership interest. The partnership
now constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain,
though they moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila
Petitioner was informed by Willy Co that the latter had bought the business from the original partners and that it was
for him to decide whether or not he was responsible for the obligations of the old partnership, including petitioner's
unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His
unpaid salaries remained unpaid.
On 21 December 1988, Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing
from November 1984 to October 1988
ISSUE:
Whether the partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and
replaced by a new partnership composed of Willy Co and Emmanuel Zapanta

HELD:
Yes, the partnership which hired Yu was extinguished and replaced by a new partnership.
In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total
partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to the
remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new partners,
coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was enough to
constitute a new partnership
In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of
winding up and closing of the affairs of the partnership.

In other words, the new partnership simply took over the business enterprise owned by the preceding partnership,
and continued using the old name of Jade Mountain Products Company Limited, without winding up the business
affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling
the said assets or most of them and opening a new business enterprise.
The new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the
preceding partnership.
PHILIPPINE AIR LINES, INC., Petitioner, vs. ANTONIO BALANGUIT, ET AL., (PUBLIC UTILITIES EMPLOYEES
ASSOCIATION [FEATI CHAPTER] and THE COURT OF INDUSTRIAL RELATIONS,Respondents.

DECISION
MONTEMAYOR, J.:
This is a petition for certiorari filed by Philippine Air Lines, Inc. (later referred to as the PAL) against Antonio Balanguit,
et al., (Public Utilities Employees Association [FEATI Chapter] later referred to as the EMPLOYEES and the Court
of Industrial Relations (CIR) to review the order of the latter dated December 10, 1954, directing the PAL to pay the
money value of whatever vacation and sick leave might have accrued to the employees listed in the petition of
Balanguit, et al., from August 1, 1946 up to June 15, 1947. For the facts of the case, we adopt and reproduce the
STATEMENT OF FACTS made by Petitioner in its petition which the employees in their answer admit to be
substantially correct.
1. Sometime before May 21, 1947, the Philippine Air Lines, Inc. (hereinafter referred to as PAL for brevity)
purchased and acquired a majority of the shares of the Far Eastern Air Transport, Inc. (hereinafter referred to as
FEATI, also for brevity). Those two airlines were, previous to the said purchases, then competing in various air routes
through the Philippines, with the result that both companies were losing and it became necessary to maintain only
one airline. The purchase gave rise to the problem of what to do with the FEATI employees. After some negotiations
between the representatives of the FEATI Employees Association and the PAL, the parties finally reached an
agreement on May 21, 1947, whereby the PAL agreed to absorb some 70 per cent of the FEATI employees, and the
said employees agreed to work for PAL under the same terms and conditions as they worked for the FEATI until such
time as they come to a definite understanding. The pertinent portion of the aforesaid Agreement reads as
follows:chanroblesvirtuallawlibrary
1. That the PAL will absorb all the employees and laborers that could possibly be absorbed by them belonging to the
Public Utilities Employees Association FEATI Chapter, and that these employees and laborers are to work with the
PAL in accordance with the provisions of the Collective Bargaining Agreement entered into between the previous
Management of FEATI and the representatives of the Public Utilities Employees Association FEATI Chapter, dated
August 1, 1946, until such time as the said Association and the PAL Employees organization come to a definite
understanding. A certified copy of the said Agreement is hereto attached and made a part hereof an Annex A of this
petition.
2. The Collective Bargaining Agreement with the FEATI referred to in the above employment agreement of May 21,
1947 of the Public Utilities Employees Association with the PAL was their Industrial Agreement of August 1, 1946, the
pertinent
portion
of
which
granted
the
said
employees
certain
privileges,
among
which
were:chanroblesvirtuallawlibrary
IV. Vacation and Sick Leave. The employees will be entitled to twelve (12) days vacation leave and twelve (12)
days sick leave with pay every year, which may be cumulative.
A certified copy of the said Industrial Agreement is hereto attached and made a part hereof as Annex B.

3. On July 9, 1947, the PAL reached a definite understanding with the Public Utilities Employees Association
aforesaid whereby they entered into an agreement cancelling the agreements of May 21, 1947 and August 1, 1946,
and declaring them void and of no further force and effect. It also provided for the laying off of all the FEATI
employees as of June 15, 1947 and the payment to them of one and a half months separation pay which amounted,
roughly to P150,000.00.
A certified copy of said Agreement is hereto attached and made a part hereof as Annex C.
4. On November 11, 1952, almost six years from the time they were laid off, the Public Utilities Employees
Association aforesaid filed a petition with the Court of Industrial Relations praying that the PAL be ordered to pay
them the twelve (12) days vacation leave and twelve (12) days sick leave with pay, from August 1, 1946, which had
already accrued at the time they were laid off on June 15, 1947.
5. The PAL, in its Answer to the Employees petition, denied liability, alleging that it was not a party to the Agreement
of August 1, 1946. The said employees were absorbed by the PAL only on May 21, 1947 and were laid off on June
15, 1947.
6. On December 10, 1954, the Court of Industrial Relations, through Associate Judge V. Jimenez Yanson, issued an
Order requiring the PAL to pay the said employees the money value of whatever vacation and sick leave might have
accrued to the said employees from August 1, 1946 to June 15, 1947.
According to the PAL the amount involved, namely, the money equivalent of the vacation and sick leave which it is
directed to pay by the CIR is roughly about P100,000.00. The question to determine is whether or not the PAL is
legally liable for the payment of this amount. It is unfortunate that the final agreement of July 9, 1946, between the
PAL and FEATI on one side and the Employees on the other, failed to make any mention whatsoever about the
money equivalent of this vacation and sick leave, whether it was payable or not and if payable, by whom. There is no
question that this leave was earned by the employees from the FEATI for the services rendered to it by them from
August 1, 1946 (the date of the industrial agreement between them and the FEATI, when they were accorded this
right to twelve (12) days vacation leave and twelve (12) days sick leave for every year of service) up to May 21, 1947,
when they ceased to render said service to the FEATI. For those employees who were absorbed and continued to
render service to the PAL from May 21, 1947 to June 15, 1947 (a period of less than one month), when they were all
laid-off, they may be said to have earned the corresponding leave from the PAL. Did the PAL assume this obligation of
the FEATI to pay the equivalent of this leave which the employees earned from the FEATI ? Nothing is said in the
agreement of July 9, 1947. The employees claim and also the CIR, though indirectly, that when the PAL bought out
the FEATI the former assumed all the rights and obligations of the latter. This is too sweeping a statement. In some
cases, when one company buys out another and continues the business of the latter company, the buyer may be said
to assume the obligations of the company bought out when said obligations are not of considerable amount or value,
specially when incurred in the ordinary course of trade, and when the business of the latter company is continued.
However, when said obligation is of extraordinary value, as in this case, amounting to about P100,000, and the FEATI
was bought out not to continue its business but to stop its operation in order to eliminate competition, as shown by the
fact that all the employees of the FEATI were laid-off, we cannot say that the vendee assumed all the obligations of
the rival airline.
What the employees should have done at the time of the, negotiation among the PAL, the FEATI and themselves
preparatory to the execution of the agreement of July 9, 1947, was to raise the question as to who would pay them the
equivalent of the vacation and sick leave already earned by them under the FEATI. Had they insisted on its payment,
the FEATI could perhaps have been made to pay unless, of course, the PAL agreed to assume the obligation. When
they (employees) failed to raise that question or have it embodied in the agreement, said failure may be regarded as a
waiver of their right. And when they received a separation pay equivalent to one and one half months and then kept
quiet about their vacation and sick leave for a period of more than five years, there is every reason to believe that
there was actually such renunciation and waiver. It would be no surprise if this separation pay was understood and
agreed upon by all parties to include the equivalent of leave already earned by the employees. It may be recalled that
the separation pay was not only for one month but it was for one month and a half, exceeding the mesada provided

for in the Code of Commerce (still in force in 1947) by half a month. It is highly possible that the extra half month pay
was to take care of the vacation and sick leave, especially when we consider the fact that at the time of separation on
June 15, 1947, the employees had, for purposes of earning the leave, not yet completed one year service (from
August 1, 1946 to June 15, 1947). Anyway, even assuming for a moment that the employees were entitled to the
payment of said leave, they were guilty of laches. It would be unfair now to demand this payment from the PAL after
more than five years when the papers and the records of the service of said employees from August 1, 1946 to May
or June, 1947, may no longer exist; chan roblesvirtualawlibrarywhen the FEATI has long ceased operations and has
long ceased to exist and when its officials who were in a position to determine which employees because of their
faithful, efficient and continuous service were entitled to leave and for how many days, may no longer be available.
The purpose of vacation is to afford to a laborer a chance to get a much-needed rest to replenish his worn out
energies and acquire a new vitality to enable him to efficiently perform his duties, and not merely to give him
additional salary or bounty. This privilege must be demanded in its opportune time and if he allows the years to go by
in silence, he waives it. It becomes a mere concession or act of grace of the employer. ( Sun-Ripe Coconut Products,
Inc. vs. National Labor Union, 97 Phil., 691; chan roblesvirtualawlibrary51 O.G. 5133.)
In view of the foregoing, the petition for certiorari is granted, and the order of the CIR of December 10, 1954, and the
resolution of the CIR in banc of December 29, 1954, are set aside, and the complaint of the employees (Association)
against the PAL in Case No. 89-V(2) is hereby dismissed, with costs.
Paras, C.J., Bengzon, Padilla, Reyes, A., Bautista Angelo, Concepcion, Reyes, J.B.L., and Endencia,JJ.,
concur.